The EIA has an excellent piece in Today in Energy, here…
“Under normal conditions, taking delivery of crude oil at Cushing purchased from the WTI futures market is straightforward. The normal physical settlement process has been affected, however, by the recent decline in the availability of uncommitted crude oil storage capacity. Consumption of crude oil and petroleum products has sharply declined following the travel restrictions and general economic slowdown in mitigation efforts for the coronavirus disease (COVID-19). As of the week ending April 17, U.S. refinery runs fell to 12.8 million barrels per day (b/d), 4.1 million b/d (24%) less than the same time last year.
As a result of this extreme demand shock, excess imported and domestically produced crude oil volumes are being placed into storage. According to U.S. Energy Information Administration (EIA) storage capacity data, crude oil storage facilities at Cushing have 76 million barrels of working storage capacity. As of April 17, Cushing inventories totaled 60 million barrels, some of which (about 2 million barrels) were in transit by pipeline, water, or rail. The remaining 58 million barrels are held in tank farms at Cushing, implying that storage was 76% full.
Although EIA data indicate that some storage remains available at Cushing, some of this physically unfilled storage may have already been leased or otherwise committed, limiting the uncommitted storage available for financial contract holders without pre-existing arrangements. In this case, these contract holders would likely have to pay much higher rates to storage operators for any uncommitted space available.
Taken together, these factors suggest that the phenomenon of negative WTI prices is mainly confined to the financial market. The positive pricing of other crude oil benchmarks (with the Brent contract for June 2020 delivery closing at $19.33/b on April 21), positive prices for longer-dated WTI prices, and positive spot prices for other (but not all) U.S. crude oils suggest that the recent price movements were predominantly driven by the timing of the May 2020 contract expiration against the backdrop of precipitous decline in consumption.
The availability of storage in Cushing will remain an issue in the coming weeks, however, and could still result in volatile price movements in the June WTI futures contract or other U.S. crude oil spot prices that face limited storage options. EIA will continue to monitor these market developments.
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